The world of online banking
Christy Heady • Bankrate.com

Online banking is taking off among consumers.

The No. 1 reason people resist online banking? Lack of privacy, say those in the industry. But is the possibility of a computer hacker pulling a cyber stickup really that great? More so than a real time rip-off at the neighborhood bank? For many people it seems so. The bank is an old friend, compared to the neophyte online world.

"It's the reality-perception thing," explains Tom Dittrich, VP-marketing for the Home Financial Network. "A bank is a trusted partner, but a lot of issues will disappear as the comfort level of computer and Internet use increases." Dittrich says that 90 percent of their customers have Internet access, but only 30 percent are using it for transactions. The rest prefer using the private dial-up service.

Bar the door

Don't think that the online banking industry isn't sensitive to your fears. Banks and solution providers are stacking up firewalls, encryptions, pin codes and passwords against hackers like sandbags against the flood. The stakes are high, with the rising trend toward full Internet access to your entire range of accounts, from checking and savings to CDs, car loans and mortgage, all in one bank. Lucky the bank that becomes your one stop shopping place. But there is still something scary about possibly baring your "financial all" to a cyberstranger.

"If someone could review your net worth, that would be a dangerous thing," agrees President Nat Bothwell of Arkansas National Bank Online (ANB). "That's why we have a password system that the customer can change often, and an automatic site logout after 20 minutes. We even had the National Security Agency review and approve our system."

He tells customers that ANB's virtual bank is as secure as the other five branch locations. Security "is a layered approach," he explains, "We have security cameras, we have a vault beyond that, and we have trained security personnel in our physical facility. The same is true in our Internet operations."

Smart banking

Even a self-proclaimed small community bank like ANB is close on the heels of the big guys, both with security measures and services. Take Citibank, for example, which has locations in 56 countries, and is currently offering online banking in eight. An upgraded online version of their dialup home bank system is now available worldwide. Customers are using it to do everything but get cash at home. "And we're working on that one," claims Susan Weeks of Citibank. "We have a smart card pilot under way in upper Manhattan. There are devices you can hook into your computer and download cash into your card."

While smart cards are still struggling to be accepted in the United States, analysts like Cliff Condon of Forrester see them as the trend more for security safeguards when encoded with digital certificates. "Digital certificates are like your signature on the PC," he explains. "It's what authorizes you as you, almost like your driver's license. It's just another layer of security."

ARKSYS, a provider of financial delivery systems, recently announced its new security smart card. Called Safe-ACCESS, the card holds your digital signature, and is designed to restrict unauthorized users into your account, even if they somehow get your password or find a "back door" into your account.

The race is on

One look at the number of more-better-faster home banking delivery systems unveiled in December 1997 at the Retail Banking Services Conference in New Orleans proves the major interest by powerful companies.

Bill Gates announced in a satellite linkup to bankers at the conference that Microsoft is developing software to allow banks to use their old computer systems to offer electronic bill paying. Apparently the new Windows program enables incompatible computer systems and data files to share information. This has been a roadblock to widespread use of Internet banking.

On Dec. 4, 1997, Wells Fargo and Key Bank announced that they would pilot an electronic bill presentation and payment service designed by Microsoft and First Data Corp. What does it do? All your bills can be collected on one Web site. You simply point, click and pay in a fraction of the time it would take to write a check, record it in the checkbook and dig up a stamp.

Bill presentation is not exactly new. Atlanta Internet Bank has offered the service since October 1996 and called it a significant advancement in bill payment, according to D.R. Grimes, AIB CEO. But it is gaining momentum. Anything to make online banking as seamless as possible.

Ask your banker

WHOOA MAN asks Bankrate: "I'm interested in paying my bills via the Internet. However, I travel quite a bit and cannot always access my account. I've heard of a service that provides the same service as electronic bill pay, however you can access it through the telephone. I like this idea, does anyone know who provides this service?"

Some banks offer both Internet and dialup access. And their fees for account transactions and investments vary between banks as much as the services they offer. For example, most banks with an online site will let you view account balances and transfer funds between accounts for free, but paying bills can generate another monthly charge.

If you are considering banking online, here's a list of questions you should ask the customer service representative at your bank:

• Find out if your financial institution offers or plans to offer an online banking service. You will want to find out all the charges and fees involved and what types of transactions you can and cannot do online.

• When you sign up for online banking, ask your banker how long it takes for each transaction to take place. Does a funds transfer take place immediately? If you pay your mortgage on a Monday, will the payment be debited from your account and credited to the recipient on time?
  
  Suppose you pay your electric bill electronically on Tuesday; however, once your financial institution's processing department receives your "electronic request," many financial institutions may still have to print out a check and mail the payment to the electric company. The result? Your electronic bill payment might not get paid until five business days later. Find out the details from your financial institution. (Note: For BankNOW banks, money is debited on the day the check clears.)

• Ask your banker about the security of online banking. Typically, the types of encryption used in online banking allows only you and the bank to see your account information. Ask your banker to explain the details in layperson's terms just how it works.
  
  Online banking has been around for 10 years, yet that does not mean mistakes can't happen. In the event of a technical problem or duplicated transaction, ask your banker what steps you will need to take to rectify any situation -- be it your error or not. If you inadvertently duplicate a transaction or send money to the wrong creditor, you need to know how to correct the error and not pay substantial bank fees in the process.

• Find out what the process is if you wanted to close the account. It may be easy to open an online banking account, but how difficult is it to close it? Is there a charge? Your banker should tell you what is involved from a financial as well as technical perspective.

Can online banking be seductive? Sure. On the positive side, consumers may see online banking as being more like a debit card rather than a credit card, which can help improve the "buy-now-pay-later" attitude that is pervading the country. On the other hand, some online members may fear giving up control of their money to a computer. If you sign up with one of the financial institutions on an online service or the Internet, make sure you understand all of the features and whether additional charges are assessed.

Online banking -- how did it happen and where is it going?

While home banking has been discussed for years, 1996 was when many banks made all those predictions happen. By midyear, 38 percent of the top 150 banks in the United States offered PC-based home banking services and most of the remainder plan to offer services within the next two years. And virtually all have some sort of telephone-based banking service already.

Furthermore, those banks that have had PC-based home banking -- whether they've offered the service for a year or 10 years -- started to see a critical mass of dedicated users in 1996. Industry leader New York-based Citibank, which has been plugging along on home banking for 20 years, is believed to have signed on about 250,000 consumers for its online banking program, and at least three-fourths of those have signed on since 1995, when Citibank eliminated its fee for home banking services.

It's easy to do online banking. Sit down, boot up your computer and dial in to AOL's Banking Center. You can balance your checkbook, invest in certificates of deposit, pay your mortgage and more, all from home. You can even pay your credit cards right online! No need to jump in the car and fight traffic to get to the bank before it closes. Plus, you can do your banking whenever you want. You are not limited to lobby hours.

Banking on the future

Is online banking the wave of futuristic money management? It's possible.

Major players are getting in on the online action. Intuit Inc., the maker of the Quicken home finance software, offers its product BankNOW through America Online where users can check account balances, transfer funds between accounts and schedule bills to be paid, while the software automatically calculates the impact of transactions that haven't cleared the bank. Some banking customers on AOL can even complete loan applications using a personal computer linked by modem to their bank. And on May 20, 1998, BankNOW was made available to Internet users to download, too.

Security, of course, is always a concern by many consumers. Typical online banking services available are protected with a PIN that members use to authenticate each banking transaction. Security measures also feature 1024-bit master RSA key encryption for session key exchange and 128-bit triple DES encryption for data encryption.

Using 128-bit encryption means that it is virtually impossible for anyone using current technology to steal information. Simply put, it is like sending your mail inside a steel safe. Of course, restrictions apply: The 128-bit encryption is only available to members in the United States and Canada and federal regulations only allow U.S. and Canadian customers to download the 128-bit encrypted software.

Driving forces

It's no secret that online banking is going full-steam ahead. Customer demand is hot for flexibility and responsive services, and intense financial services competition is requiring commercial banks to investigate alternate customer delivery channels. The result? Online banking.

Here's more proof. Personal computers are outselling televisions. But, many consumers continue asking, what about security? For one, Hewlett Packard says its explosive online system is easy-to-use, and its electronic commerce security is defined and improved.

Perhaps this is why the country's first Internet bank, Security First Network Bank, is still setting the standards for online home banking. Some say if the Internet can be described as "the information superhighway," then SFNB is breaking the speed limit.

SFNB, based in Pineville, Ky., was the first institution to offer online banking, says its president and chief financial officer James S. "Chip" Mahan III. Since the launch of the bank over a year ago, SFNB now has 10,000 customers in all 50 states, more than $109 million in assets, an avereage deposit balance of $3,072, with a mean deposit of $10,576 in certificates of deposit and an mean deposit balance of $26,648 in money market accounts.

At the one-stop cyberbank, customers can set up various accounts, pay bills, monitor credit card balances and brokerage accounts, and shop for the best insurance rates.

Customers may first be leery about electronic bill payment, but usually feel confident about using the service after about six months. Online banking also saves the customer time, notes Mahan, and has been identified as one of the most sought-after commodities today. The average time spent setting up new accounts at a traditional branch bank is more than five hours, while online accounts can be set up in a little over an hour.

Mahan also says that home banking has become much more viable in the past two years because software has become much faster and smarter.

Customer concerns

More than two-thirds of online and Internet users are considering booting up their PC and using online banking to pay bills and balance their checkbook.

The most important factor to online banking users surveyed was the overall security of their money. Those who responded to the survey also highlighted privacy, cost, convenience and access to financial information as key components to using home banking.

Interestingly, the majority of online bank users -- 44 percent -- perform their transactions using their bank's own computer network. Twenty-seven percent of the users polled use the Internet, while 21 percent transact their banking needs through an online service, such as America Online. Survey results also report that 18.2 percent of those polled are happy with their current home banking service while a slim percentage of online banking users -- 5.5 percent -- aren't happy with their service.

Posted: July 20, 1998